This week in outrageous economic shorts we quote insightful articles covering the JPMorgan Chase $13 billion settlement for bundling bad mortgages and pawning them off to unsuspecting investors. The case is due to the actions of two acquisitions made by JPMorgan Chase, Bear Stearns and Washington Mutual. The $13 billion fine covers a civil case by the Department of Justice and a separate case brought by Fannie Mae and Freddie Mac. The main stream press is all up in it over the record setting fine, yet not so fast, it turns out to be chicken feed considering the crime, once again.
JPMorgan Chase $13B Settlement
JPMorgan Chase agreed to a $13 billion fine over packaging up toxic mortgages and selling them to unsuspecting investors. Actually the fine comes from two banks JPMorgan Chase got in a gunshot wedding, Bear Sterns and Washington Mutual. That said, the profits JPMorgan Chase made on these two acquisitions far outweigh the the $13 billion dollar fine. We might call the fine a speeding ticket.
At the time of the deals, JPMorgan estimated that Bear Stearns and Washington Mutual combined would add about $3.5 billion to net income annually, Eavis notes. If correct, that would add up to about $16 billion in extra profit since 2008, trumping the $13 billion in fines.
Of course, this is a super-simplistic approach to measuring the value of these deals. Banks make bad predictions all the time, and it's possible that JPMorgan has not made $16 billion in profit from Bear Stearns and WaMu in the past five years.
On the other hand, it is also possible that JPMorgan has made a whole lot more than $16 billion from these deals. As Fortune's Cyrus Sanati pointed out last year -- in response to Dimon grousing about Bear Stearns' legal problems -- JPMorgan's net interest income alone soared by $6 billion in 2008, partially because of all of the good, non-toxic assets the bank picked up from Bear Stearns. (Remember, the Fed took most of the toxic stuff.) Bear Stearns was such an amazing deal for JPMorgan that it quickly raised its offering price to $10 a share from $2, rather than let rivals pick up the scattered pieces of Bear Stearns.
JPMorgan Chase's Crocodile Tears
New York Times financial journalist Gretchen Morgenson was interviewed extensively on Bill Moyers explaining why the JPMorgan Chase settlement is actually tame and really another slap on the wrist.
JPMorgan Chase Fine Should Be Ten Times Larger
This article quotes experts claiming the JPMorgan Chase fine should be 10 times larger and points out how the previous fines supposedly to be doled out to homeowners benefited the bank instead:
The total damages JPMorgan, Washington Mutual, and Bear Stearns inflicted directly on purchasers of the shoddy mortgage-backed securities is estimated to be $100 billion.
Consumer advocates are concerned about how the $4 billion will be parceled out to homeowners. In other settlements related to the financial crisis, such as the $25 billion agreement with five major banks in 2012 regarding flawed foreclosure practices, much of the money that has been dispensed so far provided "relief" that benefited banks more than homeowners.
Bill Black on the JPMorgan Chase Fine
Bill Black was also quick to point out how tame in comparison to the damage the $13 billion fine is:
A settlement of this kind would release JPMorgan and its officers from civil and criminal liability for a wide range of alleged frauds. Many of these alleged frauds added to the profits of JPMorgan and the companies it acquired. The shareholders should not be enriched by fraud.
DOJ failed to prosecute any elite Wall Street banker for the frauds that drove the financial crisis. The banks have failed to fire and "claw back" the compensation of the officers who led these massive frauds. We cannot deter frauds when we do not prosecute them, fire those responsible or recover the wealth they gained through fraud.
JPMorgan Chase to Pay $5.1 billion
Originally JPMorgan Chase had tried to dump $5.1 billion of the $13 billion fine onto the FDIC to pay. Not so fast and today the bank agreed to pay the FHFA:
The U.S. Justice Department is opposing JPMorgan’s request that the FDIC assume liability for investors’ losses stemming from Washington Mutual Inc., the person, who sought anonymity to discuss the private negotiations, said today. JPMorgan acquired Washington Mutual’s assets in 2008.
Resolving part of the $13 billion tentative agreement today, JPMorgan agreed to pay $5.1 billion to settle Federal Housing Finance Agency claims related to home loans and mortgage-backed securities the bank sold to Fannie Mae (FNMA) and Freddie Mac. (FMCC)
The settlement includes $4 billion to resolve claims over mortgage bonds and $1.1 billion to settle claims that JPMorgan sold faulty mortgages directly to Fannie Mae and Freddie Mac that the companies packaged into their own securities, the FHFA said today in a statement.
In the FHFA agreement, JPMorgan preserved its right to seek FDIC reimbursement for FHFA claims stemming from Washington Mutual’s estate, which is managed by the FDIC. JPMorgan has been in a legal battle with the FDIC over who should pay certain liabilities from the failed thrift, which the agency placed into receivership in 2008, selling JPMorgan the remaining assets
The FHFA agreement is part of the estimated $13 billion, but the details were not fully worked out, so this is unusual in that the FHFA went ahead and announced it's own settlement with JPMorgan Chase, on a Friday evening no less.
The Criminals Get Promoted
In our mad world of upside down where corruption and crime is rewarded as long as it is white collar and regular people get the shaft, we have yet another outrage. The crafter of BoA mortgage fraud now has a cushy executive position at JPMorgan Chase.
The Bank of America executive at the center of the recent mortgage fraud case – for which Bank of America was found liable by a jury – is not only still working on Wall Street, she is still working in the housing market. Rebecca Mairone, the architect of the scam known as “the Hustle”, now works for JPMorgan Chase as the Managing Director of Home Lending.
No One Should Shed a Tear
Matt Tiabbi weighs in on the Chase settlement:
And while it is true that the federal government in this latest $13 billion settlement is ostensibly reserving the right to continue to pursue criminal charges, don't hold your breath. The arc of this story suggests that the whole purpose of this agreement has been to find the highest price Chase is willing to pay to a) stay in business b) keep employees out of jail.
So again, $13 billion sounds like a lot of money. But Bernie Madoff is doing 150 years, and nobody in this cast of characters will personally pay a dollar in fines. Nobody will do one day in jail. That's a huge, huge discrepancy.
Bernie Madoff Charges
There is an additional civil suit pending surrounding Bernie Madoff involvement, but it sounds like Chase is negotiating that away to a wrist slap too.
The case may end in a deferred prosecution agreement, a person familiar with the matter said. Under such an agreement, the government agrees not to pursue prosecution for a period of time and dismiss the charges if the entity or individual improves its programs or complies with the law. It is one of the options U.S. authorities have discussed with the bank, including resolving the matter with just a fine, said the person, who asked not to be identified because the talks are private.
Jon Stewart On the Settlement
Some in the great corporate and CEO worship press are claiming a $13 billion fine in a shakedown. Jon Stewart calls out the main stream financial press hypocrisy.
Bank Of America Liable for Peddling Defective Mortgages
A jury found Bank of America guilty for the Countrywide hustle on bad mortgages.
Federal lawyers claimed that Ms. Mairone, who now works at JPMorgan Chase, led a program nicknamed the “hustle,” derived from the initialism HSSL, or the “high-speed swim lane.” The program linked bonuses to how fast bankers could originate loans and as a result, the credit quality of the borrower was given short shrift, the government contended. When the loans were sold to mortgage giants like Fannie Mae and Freddie Mac, they failed, generating more than $1 billion in losses.
Good-bye to the Middle Class in California
This is incredible and one has to wonder how most people can keep a roof over their heads in California these days. Dr. Housing Bubble graphs out the details. He finds only 14% of people living in San Francisco can afford any home. Quite unbelievable.
San Francisco, Orange County, and Los Angeles rank as the least affordable markets in the entire country. Only 14 percent of homes for sale in San Francisco are currently affordable to the middle class (and this is tech central). Orange County and Los Angeles rank at 23 and 24 percent respectively. Over the last year, this drop in affordability has come by the massive rise in prices.
Americans are leaving the state as foreigners continue to come into California:
From 2000 to 2010 California has lost 1.4 million domestic residents (this was largely made up with foreign migration). This is likely a pushing out of the middle class.
Surprise, Air Pollution Causes Cancer
This is one of those things where ya just have to say ORly? The UN finds air pollution causes cancer:
The air we breathe is laced with cancer-causing substances and is being officially classified as carcinogenic to humans, the World Health Organization's cancer agency said on Thursday.
The International Agency for Research on Cancer (IARC) cited data indicating that in 2010, 223,000 deaths from lung cancer worldwide resulted from air pollution, and said there was also convincing evidence it increases the risk of bladder cancer.
Depending on the level of exposure in different parts of the world, the risk was found to be similar to that of breathing in second-hand tobacco smoke.
What's In That Chicken?
Most Americans go to the grocery and think their food is safe. Marketing and advertising abound and to get to any product, usually one is removing layer upon layer of plastic and packaging. Yet what is contained within might very well be a vessel of disease and destruction. Why are these factory farms and big corporate food businesses getting away with poisoning people over and over again? It starts with labor squeeze. These food factories discovered they could recruit and import illegal labor from Mexico and not only pay them little, bust the unions in the plant, but these same workers won't squeal on anything because they are here illegally. There are more horrifying truths about the food we eat that is sold as safe, especially the chicken.
Could there be anything worse for the chicken industry than this month’s outbreak of an antibiotic-resistant strain of salmonella that hospitalized 42 percent of everyone who got it—almost 300 in 18 states?
Yes. The government also announced that China has been cleared to process chickens for the US dinner plate and that all but one of arsenic compounds no one even knew they were eating have been removed from US poultry production.